The U.S. remains on an unsustainable fiscal path, even as the administration this week expects to announce a lower deficit for last year, the Government Accountability Office says.

GAO pegged at $31 trillion to $54 trillion the current federal fiscal gap, or value of spending cuts or tax increases that would be needed to keep the national debt at its current percentage of GDP from fiscal 2007 to 2081. Under baseline estimates (i.e., if tax cuts expire and the AMT hits more taxpayers, bringing in more revenue, while discretionary spending grows at slower rates), GAO estimates a current fiscal gap of $31.1 trillion, up from $27.2 trillion earlier this year. Under an alternative scenario with lower revenues (tax cuts extended and the AMT “patched”) and spending increasing at a greater rate (including by blocking scheduled cuts in Medicare doctors payment rates), the fiscal gap is $54.3 trillion, slightly less than GAO’s earlier estimate. Closing either fiscal gap now would require massive revenue increases or cuts in spending, or a combination thereof, with a delay of even 10 years about doubling the required pain.

GAO’s latest long-term budget simulation continues to show that “ever-larger” deficits in the future will “lead to a federal debt burden that ultimately spirals out of control.” In a report released Friday accompanying its most recent simulation, GAO again urged policymakers to take action sooner rather than later, noting that the longer action is delayed “the greater risk that the eventual changes [to correct fiscal policy] will be disruptive and destabilizing” to the nation. GAO runs long-term budget simulations three times a year, with the latest exercise tagged to CBO’s August budget and economic outlook update. The administration this week will announce that the budget deficit for fiscal 2007 has again dropped, representing the third straight year of decline.

The rapid projected growth of Medicare and Social Security remains the main culprits. The first of the baby boom generation will be eligible next year to retire and start drawing Social Security, and in 2011 the first boomers become eligible for Medicare. With health care spending per capita growing on average 2.5 percentage points faster than the nation’s average annual economic growth, spending for health care (including Medicare and Medicaid) will absorb increasing shares of the nation’s resources. State and local budget problems — particularly those involving health costs — will add to the nation’s fiscal difficulties, GAO said. The agency for the first time combined its analysis with a budget simulation of state and local government fiscal policy. It found “the fiscal challenges facing all levels of government are linked and should be considered in a strategic and integrated manner.” GAO said rapidly rising health care costs are also the main problem for state and local governments, which GAO said suggests “that the nation’s fiscal challenges cannot be remedied by shifting the burden from one sector to another.”

Congress is unlikely to take any action to address growing entitlements until after next year’s elections. Two members of the House, Virginia Republican Frank Wolf and Tennessee Democrat Jim Cooper, last week introduced a companion measure to a Senate plan to review entitlements. At a National Press Club event Friday, Majority Leader Hoyer endorsed the concept but said it probably would have to wait until there was a new president in office because of the short time left for the current administration and Bush’s reluctance to “put all options on the table” — a reference to Bush’s opposition to tax increases.